Each year, the Federal Housing Finance Agency (FHFA) reviews changes in the average home price and sets new conforming loan limits in accordance with the latest trends. The FHFA recently announced the new conforming and high-balance loan limits for 2021, which is important information for those thinking about purchasing a home. Here, I discuss these new loan limits and offer insight into the differences between conforming and high balance mortgage loans.
What is a conforming loan?
A conforming loan is a mortgage that is less than or equal to the limit set by the FHFA. Since conforming loans meet the funding criteria for government-backed enterprises Fannie Mae and Freddie Mac, they’re able to be guaranteed by these enterprises. As such, conforming loans are often highly desirable due to their low interest rates (although the rate you’ll get depends on your credit profile). For 2021, the conforming loan limit is set at $548,250 for most areas of the U.S. This is an increase from $510,400 in 2020.
What is a high-balance mortgage loan?
Home prices across the nation are soaring, and the median price of houses in many areas now exceed the conforming loan limits. For buyers with their eye on a property priced higher than the cap on conforming loans, a high-balance mortgage loan may be necessary. A high-balance loan is a conventional mortgage loan that exceeds the conforming loan limit, but can still be backed by Fannie Mae and Freddie Mac. Similar to the conforming loan limits, high-balance mortgage loan limits are established on an annual basis by the FHFA for each county.
For example, if you’re planning to buy in Colorado, the high-balance loan limits are as follows for the counties shown below:
• Adams, Arapahoe, Denver, Douglas, Jefferson, Park, Elbert, Gilpin, and Clear Creek: $596,850
• Lake: $625,500
• San Miguel: $649,750
• Boulder: $654,350
• Routt: $678,500
• Garfield and Pitkin: $765,600
• Eagle and Summit: $822,375
If you’re looking forward to purchasing a home in 2021, you’ll need to determine whether a conforming loan, high-balance loan, or another type of mortgage loan is right for you.
By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.443.6292, e-mail [email protected] or visit michaelaphillips.com. NMLS: 312874.